Execs: Sequestration a Job Killer

Jul 19, 2012|by Matthew Cox

More than one million defense workers will receive layoff notices this fall if the plan for dramatic cuts to Pentagon spending under sequestration goes into effect next year, defense industry executives told Congress.

Lawmakers continue to struggle for solutions for how to avert $500 billion in defense-spending reductions beginning Jan. 2. These cuts -- characterized as a meat-ax approach -- come on top of the recently approved $487 billion in cuts to the Defense Department and threaten to deplete the highly skilled workforce in the aerospace industry.

A recent study by the Aerospace Industries Association estimated that sequestration will result in the loss of more than 1 million defense-industry jobs.

The heads of Lockheed Martin, EADS North America, Pratt and Whitney and Williams-Pyro testified at a July 18 hearing before the House Armed Services Committee that most large defense companies are bound by law to give employees 60 days' notice if their jobs are likely to be terminated as a result of sequestration.

Robert Stevens, chairman and CEO of Lockheed Martin, told lawmakers that his company is looking at laying off roughly 10,000 employees from its 120,000 workforce. The layoffs would be the result of cuts to its largest programs, such as the F-35 Joint Strike Fighter and the Littoral Combat Ship.

Other defense-industry witnesses at the hearing said they were unable to estimate how many workers they might have to fire as a result of sequestration.

David Hess, president of Pratt and Whitney and chairman of AIA’s board of governors, said that in addition to layoffs, many smaller companies that supply the larger primes with specialized parts and components may have to seek new business ventures outside of the defense industry.

Pratt and Whitney will likely have to cut back on its production of engines for the F-35s above and beyond the 179 JSF aircraft cut as part of the recent $487 billion in defense cuts.

Hess said his company will be able to move some of its employees between Pratt and Whitney’s commercial and military programs, but “if sequestration goes into effect, no amount of juggling is going to preserve my workforce or help me maintain my supply base.”

Della Williams, president of Williams-Pyro, a small cable and connector manufacturer, said it’s difficult to ease the concerns her 89 employees have about sequestration.

“I feel I owe an obligation to my employees to explain … what is happening and whether they should go look for other jobs," she said.

Rep. Rob Wittman, R-Va., said he is concerned with what will happen to the thousands of defense contracts once sequestration begins.

Stevens said that most contracts will have to be renegotiated, a process that will lead to mountains of administrative paperwork and unforeseen costs in penalties and higher unit prices.

Because of these variables, industry officials are beginning to wonder if the $55 billion in Pentagon spending cuts slated for fiscal 2013 alone will be enough, Stevens said.

“Do the cuts have to be deeper than $55 billion to achieve a net $55 billion outcome?” Stevens said. “All of that will unfold very broadly, probably all at once when we get agency guidance about terminations or reformations of contracts, and it will require a huge amount of administrative and auditing effort.”

Throughout the hearing, it was clear that the differences between Democrats and Republicans over what led to sequestration remain wider than ever.

Over the past five decades, “whenever anyone brought up a reduction in spending, we had hearings on how bad that was and who it would hurt,” said Rep. Rob Andrews, D-N.J. “And whenever anyone brought up a revenue increase, we had hearings on how bad that was and who it would hurt. That is how you create a $17 trillion debt.”

Rep. J. Randy Forbes, R-Va., had a different view. “We did not get here because the majority of the members of the House of Representatives or the majority of individuals across the country realized the insanity of continuing to allow an irresponsible and uncontrolled increase in the smothering debt our nation is mounting,” he said, pointing the finger at the Obama administration.

“This administration decided it would spend $825 billion on a stimulus package. What actually happened was they decided to spend in one year on a stimulus package almost the entire amount they are now planning to take out of defense.”

Rep. Adam Smith, D-Wash., the ranking member on the HASC, said lawmakers need to stop looking for a plan to deal with sequestration and start figuring out how to stop it.

“The problem is it’s not like you can come up with a plan that’s anything but awful,” Smith said. “The real burden of this committee, the House, the Senate and the president is to get rid of it one way or another to make sure it doesn’t happen.”